Many parents in our community ask us about transferring property or other assets to their children. While the desire to provide for the next generation is natural and admirable, the process of transferring assets involves significant legal and tax considerations that must be carefully evaluated.

Why Parents Transfer Assets to Children

Parents typically seek to transfer assets for several reasons:

• Estate planning — reducing the size of the taxable estate
• Medicaid planning — protecting assets from long-term care costs
• Avoiding probate — ensuring a smooth transfer upon death
• Helping children — providing housing or financial support
• Asset protection — shielding property from creditors

Common Methods of Transfer

There are several ways to transfer assets to children in New York:

Deed Transfer: What You Need to Know

A direct deed transfer is the most common request we receive, but it is important to understand what happens when you add a child to the deed or transfer the property entirely:

• The transfer is considered a gift for tax purposes
• You may need to file a federal gift tax return (IRS Form 709)
• The child receives your cost basis in the property — not the current market value
• If the child later sells the property, they could face a significant capital gains tax on the difference between your original purchase price and the sale price
• Transfer taxes and recording fees apply

Tax Implications

The tax consequences of asset transfers are often the most misunderstood aspect:

"Many clients are surprised to learn that transferring property during their lifetime can actually result in a higher tax bill for their children than if the property had passed through their estate after death."

Capital gains tax basis: When you gift property during your lifetime, your child inherits your original cost basis. If you purchased a home for $200,000 and it is now worth $800,000, your child would owe capital gains tax on $600,000 upon sale.

Stepped-up basis at death: If instead the property passes to your child through your estate (after death), the child receives a "stepped-up basis" equal to the fair market value at the time of death. In the example above, the child's basis would be $800,000, resulting in little or no capital gains tax if sold soon after.

This difference can mean tens of thousands of dollars in tax savings. Always consult with both an attorney and an accountant before making any transfer.

Risks to Consider

• Loss of control: Once transferred, the property belongs to the child. The parent cannot sell or mortgage it without the child's consent.
• Child's creditors: If the child has debts, judgments, or goes through a divorce, the transferred property could be at risk.
• Medicaid look-back: Transfers made within 5 years of applying for Medicaid may be penalized, potentially disqualifying the parent from benefits.
• Family disputes: Transferring to one child but not others can create conflict.

Using a Trust Instead

For many families, establishing a trust is a more effective solution than a direct transfer. A trust allows you to:

• Maintain control over how and when assets are distributed
• Protect assets from creditors and divorce
• Potentially reduce estate taxes
• Avoid probate
• Provide for multiple beneficiaries with different needs

Conclusion

Transferring assets to your children is a major decision that requires careful legal and tax planning. The "simplest" approach — adding a child to the deed — may not always be the best approach. Every family's situation is different, and the right strategy depends on your goals, your tax situation, and your family dynamics.

At Huang & Associates, P.C., we help families throughout Brooklyn and New York create comprehensive estate plans. Contact us to schedule a consultation and explore the best options for your family.